Guidi, Francesco ORCID: https://orcid.org/0000-0002-2682-189X (2025) Determinants of banks’ profitability: the case of constituents of the Euro STOXX banks index. [Working Paper] (doi:10.2139/ssrn.5250315)

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Abstract

The Euro STOXX banks index includes the largest European banks in terms of market capitalisation. The aim of this study is to investigate the determinants of their profitability over the period 2008-2022 by using linear regressions and dynamic panel data models. In accordance with relevant literature, accounting-based indicators are used in this study as internal determinants of banks' profitability, whereas industry- and macroeconomic-based indicators are used as external determinants. By measuring banks’ profitability via alternative indicators, such as return on assets (ROA), return on equity (ROE) and net interest margin (NIM), our empirical findings suggest that factors such as total assets and loan loss provisions have a more prominent effect on banks' profitability than other accounting-based indicators. An increase of bank credit risk, measured by the loans-to-assets ratio, is found to lower bank profitability. Furthermore, the effect of the capital-asset ratio on the banks' profitability indicates that over-capitalised banks may have ignored profitable investment opportunities. Managerial efficiency, measured by the cost-to-income ratio, is found to increase the banks' profitability. The robustness of our findings are then checked by using alternative measure of bank risk as well as competition. The sensitive analysis conforms the robustness of our findings.

Item Type:	Working Paper
Additional Information:	Version of this has been published as a preprint with SSRN: http://dx.doi.org/10.2139/ssrn.5250315 - MP
Uncontrolled Keywords:	banking profitability, accounting-based measures, panel GMM.
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HF Commerce H Social Sciences > HF Commerce > HF5601 Accounting
Faculty / School / Research Centre / Research Group:	Greenwich Business School Greenwich Business School > Political Economy, Governance, Finance and Accountability (PEGFA) Journal of Economic Literature Classification > Political Economy, Governance, Finance and Accountability (PEGFA)
Related URLs:	Publisher
Last Modified:	14 May 2025 10:07
URI:	http://gala.gre.ac.uk/id/eprint/50424

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